Wednesday, November 30, 2011

CFOs are Large and in Charge of Buying Process in 2012

The financial relief most expected in 2011 never came, as the European debt crisis and US credit rating downgrade renewed pessimism, and may even be driving us to another recession. The continued economic uncertainty may define 2012, as “Frugalnomics” remains in full effect driving companies to be more spendthrift and risk adverse. To better manage spending and risk, finance is playing a more active role in most purchase decisions, this according to a recent study by CFO Magazine.

According to the 570 US executives surveyed, CFO Magazine reports that three-quarters of the organizations surveyed have increased the involvement of finance in the buying process, with the survey indicating that the top areas of involvement now include:

1.       Developing/reviewing business and functional requirements (98%)

2.       Preparing/reviewing financial justification and ROI analyses (95%)

3.       Speaking with and evaluating prospective vendors (85%).

Of particular note, not only is the finance team involved in assuring business alignment and financial due diligence, but has advanced to now being involved in the evaluation and selection of vendors. And the criteria finance uses to make the vendor selection is different than most. Of 13 different factors, the most critical vendor selection factors indicated in the executive survey includes:

1. Vendor attention to the firm’s specific problems and needs (67%)

2. Price/value relationship (60%)

3. Proven performance/reliability (functionality, efficiency, productivity, ROI, etc.) (57%)

Clearly the role of finance teams has increased, with involvement throughout the decision making and selection process, particularly playing a more active role in final decisions.

The increased involvement requires vendors to build strong marketing and sales relationships with these finance executives, providing key sales and marketing content and engagements to help fight Frugalnomics, particularly diagnosing and illuminating opportunities and needs, quantifying the price / value advantages of proposed solutions, and delivering financial justification.

According to survey results, CFO Magazine recommends that vendors must improve the way the communicate with finance executives, particularly dumping the product speak and technology jargon to instead listen to and diagnose customer needs and provide a clear ROI business case. As pricing tends to be an issue in tougher times, survey results indicate that vendors need to be proactively transparent on pricing, proving total cost of ownership (TCO) and incremental ROI advantages, and helping illustrate the price / value for the expenditures.

With ROI being so important to the finance teams selection criteria, the CFO Magazine survey revealed a broad set of tangible and intangible factors that finance uses to judge vendor success, including:

1.       Direct Cost Reductions or Purchase Avoidance

2.       Labor Savings/Increased Speed

3.       Increased Revenues

4.       Enhancements In Productivity/Efficiencies

5.       Acceptance/Use by Staff & Customers

6.       Ease Of Use

7.       Whether Performance was Achieved as Promised

 Best Practices for Connecting, Engaging and Selling to Finance Execs
Vendor sales and marketing teams can achieve better effectiveness and competitive advantage if they are better able to connect, engage and sell to the finance executive. With the importance of finance in the selection process, the following five best practices can help drive better success in 2012:

1.       Specific problems and needs – implement content, tools and engagements designed to uncover and diagnose specific problems and needs, helping to illuminate and prioritize unique opportunities, and codifying how recommended solutions specifically align to the opportunities and address the need;

2.       Prove the Cost of Doing Nothing - Since many organizations are frozen in times of uncertainty, it is important to help the buyer understand that the status-quo won’t do, providing tangible evidence that there is a “cost of doing nothing”;

3.       Provide ROI justification – prove that the proposed solution can deliver substantial cost and labor savings, improved productivity and efficiency, and/or incremental revenue, providing a substantial ROI and quick payback;

4.       Quantify price / value relationship – buyers are looking for deals, and can fixate on purchase price if not careful. Therefore, it’s important to proactively prove that the proposed solutions represent a lower total cost of ownership and good competitive value;

5.       Prove ROI and success post deliver – finance is focused not just on the pre-sales selection process, but assuring that delivered solutions netted the promised ROI with measurable savings, improvements and value.

The Bottom-Line
With the economic uncertainty continuing into 2012, finance will maintain a strong and increasing involvement in purchase diligence and vendor selection. Finance is less emotionally involved in the purchase decision, requiring proof that your proposals show a clear understanding of the buyer’s challenges and issues, can deliver tangible bottom-line impact and ROI, and deliver superior competitive value. New content and engagement techniques need to be evolved to provide the diagnostics, ROI justification business case, superior value proof points and post-delivery success measures.

Sources:
CFO Independent Research Study: The Senior Finance Team and Corporate Purchasing Decisions - The online research project, sponsored by CFO Magazine, was conducted independently in July, 2011 by Martin Akel & Associates (Chester, NJ, USA). The study reflects the opinions and activities of 570 U.S. corporate executives. http://www.aba.com/NR/rdonlyres/9B9355AC-FB65-4680-8602-9CCCB99D29AB/74235/CFOPublishingWP_Nov2011.pdf

Additional articles and research regarding value selling and marketing can be found at http://www.fightfrugalnomics.com

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